APEC 2015: A sense of déjà vu
MANILA, Philippines – "The correctness of our reforms so far has been validated by the growth of the economy and a new tempo of nationwide self-reliance, even at the grassroots….We have demonstrated our own capability to manage our economy towards stability and sustained growth – earning the respect of the global economic community."
If you think this statement was made by President Benigno Aquino III, who keeps trumpeting the country's economic gains under his administration, read again.
This quote is from the State of the Nation Address of President Fidel V. Ramos in 1996, months before the Philippines first hosted the Asia-Pacific Economic Cooperation (APEC) summit.
Ramos' statement underlines the fact that then and now, the global community saw the Philippine economy as poised to reach great heights. (READ: Oxford Business Group: PH has exciting growth story)
“When people say things like the Philippine economy has never been in this good of a position before, I think they have short memories. So much of what has been happening gives me a sense of déjà vu,” said Cielito Habito, who served as socioeconomic planning secretary during the Ramos administration.
According to the World Bank, from 1991 to 1996, the Philippine economy almost doubled in size from a gross domestic product (GDP) of $45.42 billion in 1991 to $82.85 billion in 1996.
On the eve of the 1996 APEC hosting, “we were really riding high,“ Habito said.
Habito pointed out that in 1991, there was double digit inflation, 19% high unemployment rate, and GDP growth was essentially zero.
At the time, the Philippine economy was reeling from paralyzing power outages and repeated attempts by military adventurists to wrest power from the Cory Aquino administration. When Ramos became president in 1992, he pursued measures to address the problems of power supply and destabilization. He also broke the monopoly in the telecommunications industry, among others.
“Long story short: By 1995-1996, we had achieved a momentum that was not only shown in GDP figures but also in the stock markets," Habito said.
"A little before 1996, we had the distinction of having the fastest rising stock market in the whole world,” he added.
Habito recalled that appliance stores and new malls started mushrooming all over the country.
“It was almost a phenomenon, these stores that sold everything from electric fans to VHS and TVs. It was indicative of the population’s, including the countryside’s, increased purchasing power. And of course the malls started fanning out to the countryside as well," he said.
All of these, he said, were indicators of an economy in acceleration.
The growth momentum of the country was interrupted by the Asian financial crisis which hit the region hard in 1997 and 2008.
“It was not of our doing but we were caught in the regional contagion that began in Thailand and South Korea,” Habito said.
World Bank data showed that the country’s growth slid from 5.85% in 1996 to 5.19% the next year, and plummeted to -0.58% in 1998.
The growth rate did not revert back to 1996 levels until 2004.
Economic growth was again dealt a blow by the global financial crisis of 2008 and 2009, illustrating the effects of the globalized economy on even the fastest-growing developing nations.
“The saving grace of the Philippine economy during the 2008-2009 global financial crisis was that compared to the rest of the region, we were the least dependent on exports and therefore, we weren’t as vulnerable to the collapse of the export markets,” said Habito.
It was a blessing in disguise, he explained, that the Philippines' export sector was less developed than Thailand, Malaysia, and even Vietnam so it never hit negative GDP growth.
In the long term, however, it's not exactly an asset, Habito pointed out.
“In the future, we need a more internationally integrated economy with more exports and that’s where we're missing out compared to neighbors, in terms of long term potential growth," the former chief of the National Economic and Development Authority.
While domestic consumption, which accounts for about 70% of the economy, helps insulate against external shocks, it is generally agreed that the country still needs to get more of its GDP through investment spending over the longer term.
“Plainly, investment is putting in place the capacity to produce more and to grow, so longer term growth is going to be fed by spending for investments,” Habito said.
Putting in place the tools for longer growth is essential because looking at economic history, big events like the Asian financial crisis and the global financial crisis come in 10-year cycles, he observed.
Differences between 1996 and now
What is remarkable about the Philippines right now is that while the rest of the region and the world is finding difficulty with economic growth, it is enjoying 6%-7% growth, Habito said. (READ: PH economy still a bright spot in Asia - ADB)
Another factor is the upcoming ASEAN integration, which is eyed to help attract investments to the country.
"The current growth trend started in 2010 and the administration’s good governance platform helped in that. But another overlooked fact is that 2010 was also when 99% of regional tariffs were dropped as the ASEAN Free Trade Area (AFTA) came into force," Habito said.
This makes the country far more attractive for foreign investment as now, locators will have access not only to 100 million people but the whole ASEAN population, he explained.
Habito said on the whole, he remained cautiously optimistic about the economy’s prospects this time around. He warned that there are external factors on the horizon that may trigger another crisis.
“People, including myself, tend not to think of these things yet, but maybe we should be making the proper plan about how to deal with that eventuality,” he said.
Administration more optimistic
For his part, NEDA Director-General Arsenio Balisacan said that the current Philippine economy is in a very different situation compared to 1996.
“The macro-economic fundamentals are strong now with a lot of fiscal space, while back then, we had hardly any. Exports are so much more diversified now with services being exported and not just merchandize as was the case before,” he said.
Balisacan echoed Habito’s sentiment that investments need to improve, but added that the it is not as urgent as before, citing the much more diversified sources of foreign exchange of the economy.
Thus, even as the Philippines needs to import more, it does not really create much ripple because the current accounts are very strong and the reserves are there. (READ: PH peso 2nd least volatile Asian currency so far in 2015)
Balisacan conceded that investments have fallen this year due to the global slowdown, but said this can be overcome as long as domestic business confidence remains positive.
“There’s so much liquidity out there that you can count on that for now, while the global community settles down,” he said.
For Balisacan, the key to insuring more foreign investment and long term sustained growth is consistency.
“We can’t afford to slide back into old habits and our history of boom and bust cycles. We just have to make sure that the economy is consistently growing and that will bring in investors," he said. – Rappler.com